First home buyers validly cancelled an $815,000 Auckland purchase after getting a building report signalling potential weathertightness issues despite vendor complaints that only a $7000 window repair was at issue.
Sale in 2022 of a property on Mt Albert Road in Auckland suburb Mt Roskill was subject to a satisfactory building report. The house was built in the 1950s, with a 1972 rebuild seeing the house lifted and a bottom storey added.
The purchasers’ building report described exterior weatherboard cladding as being in ‘moderate condition’ requiring some maintenance and repairs. One window required immediate work; there were gaps under the sill. The report advised further investigation to ensure no damage to adjoining internal timber framing.
This report led to some negotiation. Vendor Madhava Corporation Ltd suggested $7000 be deducted from the contract price and that the purchasers later complete repairs to their own satisfaction. Instead, they cancelled.
Madhava Corporation said the defects were insufficient grounds for cancellation.
The High Court was told Madhava Corporation’s sole director and shareholder, Madhava Karmarkar, then arranged for his company to sell the Mt Roskill property to himself for $700,000. He then had Madhava Corporation sue the purchasers for $115,000, being a claimed loss on resale after the purchasers’ alleged default.
In the High Court, Justice Andrew ruled criteria for cancellation following an adverse building report requires an objective assessment of the defects raised. A purchaser’s subjective view is not relevant. It is not enough that a purchaser simply states the report is not satisfactory. The building report must reveal defects that would be of concern to a reasonable and fair-minded purchaser.
An objective assessment of the Mt Roskill building report provided sufficient grounds for cancellation, he ruled.
The report went beyond references to deferred maintenance, raising a question of potential damage to the building’s structural integrity.
Cancellation was justified. Madhava Corporation’s claim for loss on resale was dismissed.
Madhava Corporation Ltd v. Austin – High Court (29.04.24)
24.106